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Back to school nerves? - Macro Macchiato 02/09/19

Readers with children will know the feeling. Others will remember the feeling. It’s that mixture of anticipation, pride and excitement tinged with the angostura bitters of anxiety. It’s that back-to-school, first day of term feeling. The economic masters start a new term this September with the school already in special measures and red marks in the margin. Here’s a teacher’s report from the IMF published in April 2019 showing the areas of weakness in the global schoolroom, split out by economic zone and sector. The deeper the green, the lower the risk. The deeper the red, the higher the anxiety.

What strikes me about this chart is how little changed between October 2018 and April 2019. Very little has changed since April either. Households are doing well in the US especially but are steady throughout the OECD. US sovereigns may be slightly darker shade of red now that the yield curve has again inverted. Banks are stronger than they were, partly as a result of changed regulations regarding capital reserve requirements. China continues to defy economic gravity by using its foreign reserves as batteries to power its fiscal and monetary jetpack of growth. We all know China is going to buy and operate the school eventually, if we let it.

What does this mean? One thing it means is that all the political activity in the last year has amounted to diddly squat. A G7 meeting just happened in the faded seaside town of Biarritz, where the summer gives way to Atlantic storms heading east from the Americas. Did the G7 do much for any of the great global issues? Let’s take them in turn.

Climate Change? Fail: a proposed (and rejected) offer of USD 22 Mn to help put out fires in the Brazilian Amazon was dwarfed by the USD 40 Mm cost of three days’ security.

Could the G7 do anything about the US-China trade spat? Nope. China wasn’t even there. If the US-China trade war affects other countries, they will operate on the basis of sauve-qui-peut, as the French hosts would put it. Every man for himself, in the English idiom.

Did the G7 offer any coordinated activity to stave off a threatened economic recession? Not a bit of it. As industrial production and purchasing indices move south in major industrial economies, none of the leaders around the G7 table was brave enough or exasperated enough to tell Mr Trump that his policies are tearing down the global order that the US set up to its own best advantage.

If you have a mad sweary uncle living with you, you lock him in his room when the town mayor comes to tea. But what do you do when the town mayor is your mad sweary uncle? Apparently, the answer is to stare at your shoes and hope that a new mayor will be in place next time it’s your turn to host tea.

The Take Away

How does this affect shipping? The answer has to be that a lack of political activity is likely to have little effect on one particular industry. While Mr Trump cries wolf and vacillates over the severity of his threats to China, we all just keep on keeping on. When the sweary town mayor does nothing for the townsfolk, we have to do it ourselves. The shipping industry is doing just that, managing supply through modest newbuilding orders, slow steaming, lay-up and other measures. Making sure it keeps to the rules by acting on IMO 2020 and ballast water regulations. Maintaining customer service levels and improving communications internally and with external stakeholders. While the politicians turn up for the new school year in last year’s now-tight uniform and with no new pencils in their pencil case, shipping is here with its collar starched, hair combed over and shoes polished: a good start to the new term.

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